Sinch AB (publ)

Good day and welcome to the Cinch fourth quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Thomas Heath, Chief Strategy Officer and Head of Investor Relations. Please go ahead.

Thank you very much, Operator, and good afternoon, everyone who's joining us today for this results presentation for CINCH's fourth quarter 2022. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. With me today is our CEO, Johan Helberg, and our CFO, Roshan Saldana. And with those opening remarks, I'll hand the word over to you, Johan. Thank you. Thank you, Thomas. And I think we can move directly to the next slide. Outline here are the three priorities we presented back in Q2 results. Executing on them in the stated order of priority. Starting with cost control, we announced the cost reduction program in the summer targeting 300 million SEK in gross savings. Next slide. When we look at Q4, we can conclude that our cost reduction plan has delivered faster savings than anticipated. Around half of the targeted 300 million CX savings has been realized. The chart shows how adjusted OPEX has developed. Yellow part show OPEX added from acquisitions in late 2021. And green part show organic development, where you see a flattening out after a sharp increase from early 21 to early 22. Q4 adjusted OPEX in CX is 2% higher than in Q22, but 12% lower in constant currencies. There are positive one-time rises in Q4 that reduce costs by around 60 million CX. in constant currencies and excluding these one-time items adjusted opex is eight percent lower in q4 compared to q2 next slide please we targeted a 10 reduction in messaging and central functions which is a little bit more than half of the opex space We can now see that the total restructuring charges will be lower than anticipated. We now estimate them to reach 80 million CET. Next slide, please. Higher adjusted EBITDA in Q4 22 than in Q4 21 on a full pro forma basis. This includes all entities in both periods. As we said in Q3, the fourth quarter is normally a strong quarter, which also means we normally have a sequentially lower EBITDA in Q1. Next slide, please. As in Q3, cash flow is strong also in this quarter. Cash flow from operating activities close to CF1 billion. One clear focus area has been reducing our overdue account receivables. And you can see on this chart that we have reduced these further to 60 days. So our three priorities were cost control, cash flow, and growth. We see a positive development on the first two. But we're, of course, not happy with the current growth rate, especially in the messaging segment. next slide please total growth is healthy with revenues growing 41 and gross profit 79 compared to q421 we have a strategy of combined organic and acquired growth and we see here of course that acquired growth contributes significantly looking at organic growth excluding m a It makes most sense to look at the pro forma figures for earnings from the acquisitions close in late 2021 or included from 1st of October to 31st December in both 2021 and 2022. Here we see pro forma revenue growth in constant currencies declining one year-on-year and gross profit increasing 3% year-on-year. The primary driver is reduced volumes in some marketing use cases, which we know from the past are more affected by business cycle. Q4 was softer than normal compared to Q4 in previous years for the messaging segments. And looking into the segments in more detail around messaging, We have a negative growth with revenues down 5% and gross profit down 8% in constant currencies. A large contributing factor is reduced pricing and volumes with one of our largest customers. This customer is shifting focus from growth towards profitability, which means some business is reassessed and exited. This is the same customer where we adjusted prices in Q2-22. Excluding this one customer, gross profit growth in messaging would have been positive in Q4. Here, the comparables will get somewhat easier from Q2-23, but in Q1, we still face tough comparables. For voice, revenue growth at 4% and GP growth at 6%. Here we continue to have a 5% headwind from AYY reform. Our growth rate here is held by a strong demand for our number of education products. But you should be aware that the comparables in this area will get more challenging during the year. E-mail. E-mail is performing well with 19% revenue growth and 20% growth and gross profits. The cloud migration project where we change vendors to achieve a more competitive cost structure has now been completed. For SMB, revenue growth is 16% and gross profit growth is 24%. We have highlighted a negative one-time effect in the base, which has a 12% positive effect on the pro forma growth rate in June 2022. So underlying GDP growth is at 12%, which is in line with Q3. What is happening under the hood here is that growth in North American S&V offerings continues very healthy, but at the same time, there are pressure on the installed base in Australia. So coming back to the bigger picture, we of course want to see higher growth rates than we currently see, especially in the messaging segments. This takes some time, of course. and the macroeconomic environment remains uncertain. This means that we are not expecting an immediate improvement. However, there are multiple initiatives ongoing where we are investing to increase our mid- and long-term growth. We are investing in product integration, making it easier to consume multiple Finch products. Most of our customers still use only one product. One such area is developing our voice offering and making more features available via Synch.com. We continue to integrate acquired platforms and move traffic to our mobile platform, both in messaging and S&P. Lastly, we also continue to invest in APIs and software for conversational messaging. Since we have profitable and cash-generated business, we are able to make targeted investments also in more challenging environments. So thank you, and handing over the word to our CFO, Roshan.

Thank you, Johan, and good day to you on the call. This is Roshan Saldana, Chief Financial Officer at BINCH. I will walk through the financial results in more detail. Please turn to page 10. where I speak on the fourth quarter highlights. We are satisfied to see a good development in the cross-production program, delivering results faster than anticipated. Around half of the targeted 300 million Swedish kroner gross savings have been realized, and adjusted OPEX in Q4 is 12% lower than in the second quarter of last year on a constant currency basis. The OPEX is held in the quarter with about 60 billion Swedish of runoffs, and excluding that, it would have been 8% lower in Q4 compared to the second quarter of 2022. We also see margin stability and retain good pricing ability due to the superior quality and value that we deliver for our customers. Dross margin in the quarter was at 33%, up from 26% a year ago. and 1.4% up from Performa Q4 2021. On the second priority of cash flow, we have yet another quarter with strong cash flow. Adjustability was at 960 million, and we had improved cash flow from operating activities at 973 million Swedish . This means that we were able to take our leverage KPI of net debt over adjusted VDA, excluding IFRS 16 leases to 2.7x compared to 3.2x at the end of September 2022. Please turn to page 11, which shows a bridge explaining our underlying gross profit development. In the fourth quarter, we had organic gross profit growth 2% and perform our organic gross profit growth of 3% on a constant currency basis. We focus on gross profit when we assess and steer our business. Consolidated gross profit rose by 79% during the quarter to 2.4 billion Swedish kronor and gross margin improved to 33%. The Swedish donor weakening against major currencies has grown by 156 million, or 12 percentage points, and the acquired companies during the last 12 months contributed 65 percentage points of the gross profit increase. Looking more closely at the individual segments in messaging, we have an organic growth in gross profit in local currencies and in comparable units at minus 8%. which is due to price reductions with a large customer previously announced in Q2 and weaker traffic compared to last year in the fourth quarter. Moving on to voice, on a formal and organic basis, excluding foreign currency effects, growth in the voice segment was at 4%. This includes a negative effect from the HYY regulation change in the U.S. with 5 percentage points. In the email segment, on a performance and organic basis, growth was at 20 percentage points, and in SMB, it was at 24%. The SMB segment is affected by a one-off negative impact in the base in Q4 2021, prior to acquisition, and excluding that, the growth would have been 12%, which is similar to what we had in the third quarter of 2022. Growth in the U.S. market continues to be strong for SMB, but that is offset by slower growth among larger customers in Australia. Moving on to page 12, you can see that the numbers on this slide are on a proportion basis, including all completed acquisitions. And it shows also the gross margin stability, which reflects the strength in our product proposition towards customers. We believe that we can improve this over time as higher margin products are growing faster. Q2 2022, as you know, was affected by a reassessment of reserves for approved traffic costs with 162 million Swedish kroner in the messaging segment. Adjustability margin also continues to be stable at 13% and is supported by the benefits of our program where half of the savings are now utilized. Adjustability margin in the messaging segment was 8% for the quarter. I'd like to move on to page 13 where we have the income statement. Consolidated net sales grew by 41% in the quarter to 7.4 billion Swedish kronor. The growth rate in the quarter was positively affected by previous acquisitions. On an organic basis, in local currency, the growth was minus 2%, and on a full-performer basis, in local currency, growth would have been minus 1%. Other operating income includes foreign exchange gains, related to operating items and reversal of a previous acquisition. APTA for the quarter was 791 million SEK up from 330 million last year. One of items as I have referred to already in operating costs and the adjusted APTA by 60 million SEK in the quarter. Adjusted APTA per share, came in at 1.13 for the quarter versus 0.31 during the same period last year. We made a goodwill impairment related to the email segment in the third quarter of 2022 of 5 billion Swedish Drona. And in this quarter, we have the currency effect related to that impairment of 97 billion Swedish Drona. EBIT came in at 66 million for the quarter versus minus 12 million in the same period previous year. Acquisition-related amortization, which does not affect cash flow, was 587 billion Swedish dollars. Adjusted EBIT, which excludes both items affecting comparability and amortization of acquisition-related intangible assets, was at $919 million versus $393 million during the same period last year. Moving on to slide 14, which shows the cash conversion. You will find a bridge from adjusted EBITDA to cash flow before changes in working capital and explaining the effect between these items. As in the previous quarter, we can calculate cash conversion after interest payments, taxes, changes in working capital, and investments in capex. In the quarter, we have a continuing strong cash conversion. We see a capital generation before changes in working capital of 661 million. We see total cash conversion of 82% in the quarter. which is aided by a positive change in networking capital. Even if we excluded the positive gain from networking capital, this cash conversion is still at 50%. On average, over the last 12 months, we have a cash flow conversion of 60%. Note that interest rates have come up. Effective interest rate in the quarter was 4.5% on an annualized basis. We also expect working capital to be more lumpy, and we do think we have unlocked a large amount of the working capital that was lost when we started this year. Please turn to the full chapter statement of page 15. We see a strong development in conversion of adjusted EBITDA to free cash flow from operations. Cash flow from operating activities after changes to working capital was 973 million Swedish for the quarter. Networking capital as a percentage of sales continues to be low at around 6%, which shows the applied nature of our business. In addition, during the quarter, we amortized about 600 million Swedish kronor of loans, and the group had a closing cash balance of 2.1 billion Swedish kronor. In addition, we had available bank overdraft facilities of 913 million Swedish kronor. Moving on to page 16, there you see the net debt over adjusted EBITDA, which is affected by three components. Adjusted EBITDA growth, cash generation from operations, and current impacts, which are immediate on debt, but we have a trading impact on earnings. EBITDA growth and strong cash generation caused net debt over EBITDA to fall in Q4 versus Q3. We expect continued deleveraging from earnings growth and cash generation. In the quarter, we also extended maturities for about 6.5 billion Swedish dollars and 110 million US dollars of existing credit facilities by year to 2026. And then moving on to page 17, we reiterate our financial targets to grow adjusted EBITDA per share by 20% per year and to keep net debt over adjusted EBITDA below 3.5% over time. Adjusted EBITDA per share grew 104% in the fourth quarter measured on a rolling 12-month basis. And net debt to adjusted EBITDA is at 2.7x, which is well within our financial goals. and we expect to continue to deleverage. For the last 12 months, there is no difference between performance and reported adjusted EBITDA, but this KPI excludes the impact of IFRS 16-related lease debt on both net debt and adjusted EBITDA. With those comments, I would like to hand over back to you, Juan, to summarize today's presentation and open up for Q&A.

Next slide, please. So again, I want to reiterate the priorities we set in Q22 and which we have been delivering on since then. We launched and executed a cost reduction program where we realized half of our targeted 300 million SEK cost savings in Q4. We reported a record adjusted EBITDA number for the company. We have improved our cash flow and managed to convert some 60% of adjusted EBITDA to cash flow in 2022. Many parts of the business perform as expected, but we can improve growth rates in our messaging segment. Looking holistically at our entire business, we have a healthy business, stable margins, and a very diversified earnings pool. There is still potential to extract further cost and revenue synergies from the acquisitions close in 2021. We believe we are well positioned to advance our position in the marketplace. Thank you for that, Johan. And with those concluding remarks, I'll hand the word over back to the operator for questions.

We will now begin the question and answer session. To ask a question, you may press star then the one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please jump back into the queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Priyaj Sadanovic with Carnegie Investment Bank. Please go ahead.

Thank you, operator. Good afternoon, Joanna Roshan. Could you reason a bit on the market and the competitive landscape, the market growth, and the opportunities you see now? I know this is a broad and strategic question. I get that. But what I'm getting at is that pretty much all of your competitors are doing quite drastic things, which is refocusing very much on margins and cash flows. And, of course, some of them start from losses. but they're reducing staff quite significantly, cutting marketing R&D, raising prices, et cetera. And I'm just wondering if this gives you any opportunities, and if so, what kinds? And also on your recent customer wins, do they have anything to do with this behavioral change from some of your peers? Thank you.

I think for the enterprise segment, we are seeing that the competitive environment is softening somewhat. So we feel that we have a very strong position in that marketplace. And I think we look forward to 2023 and some of the cross opportunities we have with our enterprise customer base.

All right. And the 15 new customers you sign in messaging, can you put that in relation to maybe your next customer growth in the previous quarters? And could you also quantify what this could mean in terms of gross profit once they're scaled fully?

Thomas here. I think we continue to see a healthy inflow of new customers, as we did in Q3. You should bear in mind that in the messaging segment, we're talking about larger customers. Smaller customers will sign up for our S&D offering or use our email products. So these are large customers, which take a few months to sign or close, and then in further months to ramp and show proper volume. So there's a little bit of a lagging effect in terms of customer acquisition and the competitive landscape. it's it's a satisfactory performance of course the overall growth is impacted by many factors expansion uh is an important one next to customer acquisition as well okay super thank you the next question comes from stefan golfing with dnb please go ahead

Yes, hello. A couple of questions. First of all, with a bit weaker demand, especially in messaging and voice, and in combination with faster than expected results from the cost program, why aren't you looking at expanding the scope of the cost program given the uncertain outlook secondly um i saw that you are looking at raising prices in in first half i mean given the uh weaker volumes and uh weaker demand uh is it the the right medicine to to raise prices in that environment just uh your thoughts on these two questions please

If I start with your last question, we analyze what customer segments that we can raise prices for, and we will not raise prices across the line. It's for specific customer segments where we believe it will be successful. and then do we have the uncertain outlook and and potential further cost reduction programs were of course following carefully how the business develops but as of now we do not have any further plans for cost reduction programs okay okay thank you

The next question comes from Daniel Thorson with ABG. Please go ahead.

Thank you very much. Two questions. The first one is on the mid- to long-term EBITDA margin here. When you announced the acquisition of Pathwire one and a half year ago, you showed a margin graph with a pro forma level of around 16% for all the combined entities. is that something that is still reasonable for the mix of businesses you have today a couple of years out or has anything changed in the last one and a half year that does not make that figure reasonable reasonable today for example and then secondly now when you deliver and generate positive free cash flow and we see competitors are struggling a bit more what needs to happen to be in a better shape for m a or for you to look at smaller targets in the market thanks

I can take the first one, Rolton, here, and then I'll hand over to you, Van, to answer your second question. On EPD emerging, I think, you know, that slide that you're referring to was historical reforma. I think in reference to the one's previous answer, we do see the potential in these agencies. We have just ordered to gather these different organizations, and we see synergies both on the revenue side and on the cost side over time to be realized um i think it's a bit too early to to kind of talk about uh meet the long-term targets and this is not you know something that we have forecasted before but we see the potential increase and for for m&a i think we continuously scan the standard market and we are in a better position now than we were a couple of quarters back

I think main targets right now would be targets that are financially accrued. Yeah.

Thank you very much.

The next question comes from Akhil Datani with J.T. Morgan. Please go ahead.

Hi. Good afternoon. Thanks for taking the questions. Can I maybe ask – question around the outlook. Obviously, you've sort of helped us understand the way you're thinking about growth versus profitability, but I just wanted to dig a little deeper into how you're thinking about the shape of trends over the coming quarters. In the press release, you talk about not expecting any immediate improvement in growth rates going forward. I just wanted to clarify what that means. I mean, are we talking about relative to the organic growth rate in Q4. Are you talking in some other way? So if you could maybe just help us understand what you're thinking about, what you're talking about here, so we understand the shape of the coming quarters. And I guess a very similar question on margins. You know, we've had two good EBITDA margin quarters in the last couple of quarters. Is that a sort of reasonable... as we think about the going forward. And then the second one is just on management. You know, in your press release you talk about quite a lot of management changes across the divisions. I just wondered if you could talk us through how that impacts, if at all, the integration processes. You know, does that create any challenges? Thanks a lot.

Thank you very much. I'll start, Thomas, here. I'll start with the first one. I'll hand over to you, Juan. So when we talk about the perception about the immediate future, we're referring to the full company on a performant perimeter, performant organic perimeter. Noting what we alluded to earlier, that our comparables in Q4 and also going into Q1 are quite tough. Some comparables are easing. further on in the year. But at the same time, we have a quite uncertain macroeconomic environment. So, you know, there are lots of puts and takes as we look further out. But we just note that we had a strong quarter last Q4 and also a strong quarter last Q1. So that's what we are referring to. In terms of the, you know, the sequential pattern, we did give performer figures for Q4 2020. for last year, so you should have some indications in the sequential guidance Q4 to Q1 if you want to look at the near-growth.

Is there anything, Roshan? I think just adding maybe a little bit of commentary on the individual segments to that one. I think what we've said here is that in Q4, we were not satisfied with organic growth in next year. and voice we think we see a good growth pattern in the email segment which is improved by improvements in the cross market and smb continues on the same trend that we have seen in the third quarter so there's a little bit of a difference between the segments On EBITDA margins, I think the only thing we can say is that, you know, if we have a good and stable, it's very much dependent on revenue and gross profit. I would say the short term, so if we have a stable revenue and gross profit, if we expect to have them, we don't see any reason why there should be any worsening of EBITDA margins. And with that, I'll hand over to you, Juan, for the last question.

yeah and i would say we now have a management team that can successfully integrate the different assets we have acquired over over the years creating more than one siege experience for our customers and also successfully extract revenue and cost to reduce going forward thanks

The next question comes from with Morgan Stanley.

Please go ahead. Good afternoon. Thank you for taking my questions. From me, please. One, could you give us an update on the basic versus advanced messaging mix in the messaging segment? And could you comment on how the advanced messaging segment is doing? And then the second question on EBITDA margin. So your Q4 adjusted EBITDA margin was broadly stable quarter-on-quarter and year-on-year. Could you give us an indication of the evolution when removing the one-off recurring items and FX tailwinds, please? Thank you.

Thank you. I'll start off with the first one, and I'll take Rochelle's help for the second one. You might need them. to repeat that question. But starting off in messaging, there are multiple ways to customize the market for analytical purposes in terms of what we have more concrete data on. It's different types of communication channels, so SMS, RCS, Telegram, Viber, KakaoTalk, and so forth. As you know, we have what we believe is a market-leading offering in terms of breadth and width of messaging channels. In terms of use cases, it's a little bit more of a sliding scale, and it's hard to apply that type of segmenting, which we can find in reports from industry analysts. It's hard to apply that in a structured way to real-life data, so we don't practice it in that way. In terms of looking at the different communication channels, we continue to see fragmentation in messaging and the quite diverged development across different geographies, where in particular WhatsApp is continuing to perform well in India and Brazil. We have success with Telegram in other parts of the world. And it's a little bit of a mixed picture. We also see RCS in certain countries starting to gain traction. So it's a little bit of a mixed picture. These new conversational channels, of course, tend to be used for more advanced use cases, but of a more conversational nature. I think your second question was on, perhaps we can repeat a little bit on the EBVA and

Sure. So your EBITDA margin in Q4 was around 13% of revenues. And in Q4 last year was around the same. Q3 this year was also around 13%. But I understand you had some FX tailwinds and also some tailwinds from one of recurring items in Q4. Does that mean the margin actually decreased quarter on quarter and year on year in Q4? If you can help us understand that, that would be great. Thank you.

I think the only difference in the fourth quarter is the one-off comment that we have made on 60 million in operating costs, which helped us in the fourth quarter. But besides that, I mean, all other effects are consistent over the quarters. We have an FX tailwind on gross profit that we highlight. We have, of course, an FX headwind on the operating costs, which nets out this part of the gross profit.

The next question comes from Andreas Dolson from Danske Bank. Please go ahead.

Good afternoon, everyone. Two questions for me. First of all, looking into 2023 and the growth uncertainty that you see, and you mentioned that you are investigating or looking into future-looking investments. in that perspective how do you look at the overall target on ebda per share bearing that in mind of 20 growth and secondly maybe a follow-up to the previous question on the messaging volume you mentioned that you have seen wholesale coming down one large customer reducing volumes do you see any other similar risks in in the portfolio you have of messaging volumes or how should we see that going forward when we look into 2023 maybe wrote in here i can take a stab at the first one and then i'll let you one maybe a second

The only that the target that we re-iterated this quarter, that we want to grow it to be 20%, of course, that is sensitive to gross profit development. And we need to continue to watch it closely. But we have some cost savings, of course, that should help us during the coming quarters. And this is something we will continue to watch closely to be able to deliver to our target. Yvonne?

Yeah, I think the risk in the messaging segment and what we talk about in the report is the marketing use cases. I think Q4 is sort of marketing heavy with the big shopping weekends and so forth. We have less of them in the coming quarters, but that is the use case that we talk about in the report. And in terms of customer concentration, customer concentration for the entire group has come down markedly. And it's a lesser concern than it was in previous years.

Great. Thanks.

As a reminder, if you have a question, please press star then 1 to be joined into the question queue. The next question comes from Klaus Danielson with Nordia. Please go ahead.

Yes, good afternoon. Thank you for taking my question. So just a quick follow up on the pricing side and what you talk about with customers becoming more price sensitive. Could you maybe elaborate on what types of effect that is materializing as? Are you seeing kind of any customers staying with Cinch and moving some volumes to other competitors or what's that materializing as? And then secondly, also, I wanted to follow up on the operator behavior on the pricing side, basically, if you could elaborate a bit on what you're seeing in terms of trends there.

Thomas, I'll clarify the first question and hand over to Johan for the second part. So what we're alluding to in terms of price poking is that focus is really related to some customers, some larger customers in our messaging segment and our voice segment. It's where we have customers, software vendors, who either resell or embed our offering into another software product. So we're not thinking about banks or airlines or hotels, more technology-oriented companies and service providers. Like ourselves and many other companies in this environment, these companies are scrutinizing their costs. and looking at every line item in their P&L. And that just means that the price has a, you know, being more important to the ongoing discussions with vendors. We're very comfortable that we are maintaining or increasing our share of wallet with these customers. We have a privileged position based on a long track record of delivery and recognition for the high quality in our offering, which maps well to this type of customer segment. So this, you know, I don't want to exaggerate, you know, how much, you know, an open customer base is related to, but, you know, even a few large customers can have an impact. And also, we don't really see this in the S&B and E&M segments, which are, you know, more long-tail oriented. Then I think there was a question on carrier pricing.

Yeah, can you please repeat that question? It would be great. Thank you. No, it's just a very broad question on what you're seeing operators doing on pricing currently and basically what your visibility is also on that side into 2023, if you could maybe elaborate a bit on what trends you're seeing there.

No, I think we had some of that in previous years, but going into 2023, we don't see that that will affect our numbers in any way.

Okay. Thank you very much.

The next question comes from Mohamed Mawala with Goldman Sachs. Please go ahead.

Great. Thank you, and good afternoon. I had two questions, please. One, just as we look at the top line evolution, you obviously talked about some of the challenges When do you expect the business to potentially kind of come back to sort of market growth rate on a kind of organic gross profit basis? And do you feel the need to potentially reinvest some of the savings from the cost-cutting program to stimulate that acceleration? And then secondly, obviously on the working capital movements, this quarter it was driven by increasing accounts payables. If we look at things like the receivables and DSOs that come down to 60 days in the fourth quarter, are we kind of approaching a floor on the DSOs and how much more working capital improvement can you drive, particularly on the kind of DSO side? Thank you.

Yes, on the investment, we are investing in initiatives, especially around product integration, making all our products available on digital channels and also to have all our sales teams sell a complete product portfolio. So this is cross-cell effects, and we are probably in 2023, for the digital channels, we will not see the effect, but for cross-cell with field sales teams, we should be able to see effects in H223, although from a small level.

I think on the second question, I think if you look at the working capital impact that we've had, we're currently operating at about 6% of revenues. This reflects the asset line makers of our business. In this quarter, we have both ESO and DPO contributing to working capital release. I think ESO increased from 69 to 60 on a full year basis, but even compared to last quarter. DPO increases as well, but within range this quarter. Now, when you look forward, I think on a structural basis, we do see the possibility to improve working capital over a longer term. But I think the large part of the short-term unlocking is behind us now. So we see now we'll be reverting to a more normal range of working capital movements that can be reflected.

Okay. Thank you.

The next question comes from James Pavey with Bank of America. Please go ahead.

Hi, Will. Thank you very much for taking my question. A quick question on visibility on volumes over the rest of 2023. You called out earlier that you've got a big impact in Q4 from marketing. Are you worried about any spillover effects into other segments like email? I think from your deal presentation, you had about 40% with marketing and 60% transactional email. Thank you.

Yes, I think that the volume patterns of course vary a little bit by product, job-working and customer segments. Generally speaking, the trajectory for email is quite optimistic. Email is a very cost-sufficient channel for marketing, which is very high ROI for enterprises who use it. It's quite a different value proposition than using, for example, messaging channels, you know, which are more expensive and more, you know, a premium nature, but can also have high ROI when deployed correctly. So it's a little bit different between the different channels. We've highlighted a few headwinds in terms of volumes, Brazil being one of them, which, you know, has been tough, whereas India, for example, has recovered and is doing very well. Volume growth in Q4 is also affected by our conscious choice to prioritize profitable growth and profitable business in general, which means we opted to move away from certain essentially where the margin profile has not been affected enough.

All right. Thank you.

The next question comes from Stefan Gosen with DMV. Please go ahead.

Yes, just a quick follow-up on the PATHWIRE. When was the migration to the new cloud infrastructure completed? Was it beginning, mid, or end of the quarter, just to understand the margin and development?

This was a phased migration, I would say, over the second half of the year. So it was completed gradually through the second half.

Okay. Thank you. The next question comes from Andreas Jolson with Stansky Bank. Please go ahead.

Yes, just a follow-up on the cross-sell potential and the execution. If you could provide us with some data on where you are and what you see ahead and where the challenges are, your learnings so far. What is the main hurdles for the ones that are using one product to go to two products?

Thanks. Yeah, so a little bit different depending on the phase motion in our If you think of an existing messaging customer where we have an account manager and a field sales model, then it's essentially similar to onboarding a new customer, with the difference that we will have passed a lot of hurdles and requirements, security clearances and so forth, and we'll have a foot in the door as an existing vendor on an adjacent product, right? But other than that, the onboarding process in a deal sales scenario is similar to a new customer. On the product-led growth side, so think about the 100,000 plus developers who use our email products. They're not interacting with our sales team directly. The sales process is carried through the product. That means that to cross an upsell, you need to expose and build out product features and functionality so that when, for example, you log in to Mailgun, it will be exposed in one way or the other to our messaging offering, our voice offering, our OTP offering, and so forth. So a little bit different, you know, whether it's sales-led, you know, cross-sale or product-led growth that we're looking at. But of course, those are our focus areas for us.

Okay, thanks.

We are now coming to the end of our session. I would like to turn the conference back over to the company for any closing remarks.

Thank you very much, operator, and thank you everyone who dialed in today for the continued interest in our business. And I'll leave over to you, Juan, for some concluding thoughts. So finishing off with your summarizing that we're already setting our three priorities, we're pleased with the execution on the cost control and and on ebt and cash flow we can improve on all the growth rates especially in the messaging thank you everybody thank you very much thank you the conference has now concluded thank you for attending today's presentation you may now disconnect